Asset Based Lending The asset-based lending market is a preferred method of financing companies in the current economic climate as this trend shows no signs of slowing down anytime soon.
Overall, the total amount of new transactions in asset finance was up by a staggering 106% over the course of the month of May 2021. this mostly due to the increase in lease and hire purchase agreements.
What exactly is an asset-based loan or financing and what advantages do they offer entrepreneurs?
What is Asset-Based Lending?
Simply put, asset-based financing is classified as a different method of business financing.
In particular, it allows entrepreneurs to obtain loans in exchange for one assets owned by their company. The assets may vary in their nature, and the value of all the collateralized assets will determine the amount of money that can be taken out.
As we’ve mentioned before the fact that this is a secured kind of loan, which means that the assets involved could be taken by creditors in the event that companies fail to repay the loans and do not make their obligations.
What Assets Can I Use for the Purpose of Asset Financing?
It is possible to leverage various types of assets by using this kind of financing according to what you intend to do with your company and its primary goal.
Let’s say, for instance, that you’re planning to gain access to asset-based lending as a service. In this instance you could offer your receivables accounts to a third-party to increase your cash flow in real-time prior to repaying the short-term loan once customers have paid the outstanding invoices.
Similar principles apply to purchase orders. However, companies that focus on product development can leverage their stock and inventory to obtain money in the amount required.
In the majority of cases, businesses may also leverage less basic and useful assets like their commercial or industrial premises (so as long as they’re owned by the company). These assets can be used to obtain larger sums of money, but there’s also greater risk due to the essential nature of these assets and the roles these assets play within the company.
In the same way, you could secure funds based on the worth of the intellectual property of your business (IP) in particular when you’re an creative brand within the technology sector.
What are the Advantages of Asset-Based Lending?
One of the major advantages of lending through an asset-based platform is that it improves liquidity. You can access cash swiftly, effortlessly and with minimum hassle.
Due to the wide range of assets that are leveraged, this kind of financing is also available and allows you to decide the method you use to raise cash as well as the amount of cash you require.
Since asset-based loans are secured against property, equipment or other tangible assets that are tangible, borrowing is less. This is due to the fact that lenders can offset their risk by using collateral. This means that the amount you repay over time will be less.
With options like factoring or invoice financing it is possible to borrow short-term and affordable amounts of debt that won’t impoverish your business for long periods of time.